16A — December 2023 — M id A tlantic Real Estate Journal
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C ommercial R eal E state L aw
By Dolores R. Kelley, Stark & Stark Five Under-the-Radar Title Issues that Cause Problems for New Jersey CRE Buyers
A s many buyers of com- mercial real estate may have learned
and their attorney would want to resolve before they purchase a property. Sometimes, a title commit- ment or survey will uncover under-the-radar title issues that could be marks on the title if not properly addressed by a buyer and their attorney. If the buyer does not address these issues before they sell the property down the road, these issues may delay the sales pro- cess and cause headaches for the buyer-turned-seller. Here are five such issues New Jersey commercial real es-
nicipalities hold tax lien sales. These sales give investors an opportunity to purchase tax liens and collect payment with interest from property owners. If a property owner does not make payment, an investor may foreclose on the property two years after issuance of the tax sale certificate if the certificate is issued to a third party. If the lien is not sold to a third party, it is retained by the municipality and the municipality may foreclose six months after the date the auction occurred.
The foreclosure of a tax lien in New Jersey is a “strict foreclosure,” which means that upon the order for judgment, the property vests directly to the holder of the tax lien. Once the judgment is issued, the property owner can no longer redeem and pay off the taxes. Once a foreclosure action is filed, any would-be purchasers of the foreclosed upon property must intervene in the foreclo- sure proceeding and either get consent from the lien holder, or secure a court’s approval of the sale and proposed price, to finalize the transaction and obtain title to the prop- erty. A 2021 amendment to N.J.S.A 54:5-89.1 raised the bar by permitting a purchaser who acquired an interest in a property after the filing of a foreclosure to intervene only if they had paid fair market value for the property. The amendment provides an ex- ception for family members and other individuals close to the property owner, or if the interest was acquired through a judicial sale. The lien holder can challenge any redemp- tion if the funds came from a source of the payoff came from someone other than a specific exception. Therefore, great care needs to be taken whenever a foreclosure has commenced on a tax lien to ensure that any repayment is made in accordance with statutory requirements. Construction Liens New Jersey allows contrac- tors and others who work on property under a written contract to file a construction lien—also known as a mechan- ic’s lien—for any unpaid labor or materials. Construction liens can complicate commer- cial real estate transactions. When the property is a com- mercial property, the contrac- tor or supplier has 90 days from the day they provide the last services or materials to file the lien. However, the op - portunity to file a construction lien ends when the property is transferred to a bona fide pur - chaser who has recorded their interest prior to any lien filing. Unlike some other states, New Jersey does not allow waiver of a construction lien unless it is secured through actual payment to the lien holder. Thus, when there’s a construction lien on a commer- continued on page 18A
tate buyers should be aware of. Tax Sale Certificates Buyers of commercial real estate in New Jersey subject to a tax lien who purchase the property after commencement of a foreclosure action in con- nection with the tax lien, or who do not record their inter- est prior to the filing of the foreclosure complaint, may have difficulty securing clear title to the property. In New Jersey, property taxes create a continuous lien on a property. At least once each year, New Jersey mu-
the hard way, what they don’t know about the title to a property they’re pur- chasing can come back to haunt them. Normally, a
Dolores R. Kelley
title commitment or survey identifies issues with encum - brances on title that a buyer
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